GTM aims for IPO after quantiQ acquisition

Latin American chemical distributor, GTM, aims to go through an initial public offering (IPO) in the next five to 10 years to help fulfil ambitions to grow first into North America and then globally, the company’s CEO says.

The company, which on 10 January revealed it has signed a deal to acquire Brazil’s quantiQ, will first consolidate its position as the largest independent distributor in Latin America before looking for opportunities in other regions, CEO Michael van Marle told ICIS.

The quantiQ deal is GTM’s third acquisition in the last six months. It follows the purchase of High Chem Specialties in Mexico and Peruquimicos in Peru in the second half of 2016.

“The deal is transformative, and will grow the company’s sales by 35-40% towards a strategic objective of $1bn.” It was funded with the help of GTM’s owners, the private equity group Advent International, which took a controlling stake in GTM in November 2014 through a management buyout.

According to van Marle: “We have achieved double-digit annual growth for the last 10 years. As we were growing so fast, we saw an amazing opportunity to take part in the consolidation of the Latin American distribution sector.”

Latin America’s distribution sector is highly fragmented with the top five companies controlling less than 20% of the market. This compares around 40% market share for the top three distributors in the US.

After thinking about all the alternatives for a financial sponsor, GTM decided that Advent International would be the best partner because they are the top private equity player in Latin America and number seven globally, with a lot of chemicals experience.

ONE-STOP SHOP

“We liked their philosophy – they are very collaborative and a very good fit. Advent has allowed us to take the company to the next level.”

Prior to the quantiQ deal GTM had grown from its Guatemalan roots to serve 12 countries in Latin America. GTM’s core businesses include coatings, adhesies, sealants and elastomers (CASE), household and industrial care, oil and gas, and construction.

“Our strategy is to become a full-line distributor to provide a one-stop shop, providing solutions to customers and suppliers,” says van Marle.

GTM currently only has an oil and gas distribution operation in Brazil so it makes sense to broaden its penetration of that important market. Despite having been badly impacted by the oil price crash, political turmoil and its economic consequences, Brazil represents 35% of Latin American GDP.

“We are small in Brazil and want to balance our presence throughout Latin America.

quantiQ is a transformational transaction, making us the largest independent distributor in Latin America, and representing around 35-40% of our sales.”

NEW MARKETS OPEN UP

quantiQ is strong in CASE, specialty chemicals and performance and industrial products. “It’s the sweet spot we had looked for – transforming us into a leading Latin American player with sales over $1bn.”

The merged group will have 12 application labs to create new and improved formulas. With quantiQ and its other acquisitions, GTM will be around 30% specialty chemicals with the rest focused on performance and industrial products.

The combined companies will have 62 distribution centres, 15,000 employees and operate across more than 50 market segments.

“quantiQ opens up new markets for us. With the acquisition we will increase our focus on core segments as well as focussing on cross selling and white space [gaps in portfolio] development. There is a tremendous opportunity to take quantiQ’s capacity, knowhow and principles into our existing markets.”

Van Marle says GTM still has some portfolio gaps in cosmetics and personal care which can either develop organically or be filled through bolt-on acquisitions. He wants to strengthen and consolidate the company’s position in Latin America. Whilst the quantiQ acquisition will take time to digest, GTM will continue to look for bolt-ons. Management will focus on cross selling, filling portfolio gaps and further integration of the acquisitions.

“There are still opportunities to grow with our existing platform – with Advent’s backing we can continue to improve our position in Latin America. We have not yet decided how fast we want to accelerate growth. Here there are opportunities to grow not just into other geographies and white spaces but to improve our position in our core segments.”

The company has ambitions to grow outside Latin America and to go global, possibly following an IPO when Advent International – which acquired GTM in 2014 – decides to exit the company. Private equity players typically hold assets for around three to seven years.

“There will be an exit and the primary focus will be to do an IPO although we can’t rule out a private transaction with a strategic player. We are very cashflow-rich company and generate enough to continue with [mergers and acquisitions (M&A)] using our own resources,” says van Marle.

For now, though, GTM will concentrate 
on Latin America because it is a specialist in this region.

“We really want to get this right so we’ll spend the next two to five years focused on Latin America and then see what opportunities there are to further expand in the Americas. In five to 10 years’ time we can start thinking about going global and the fastest way to do this will be M&A.”

After the Americas, van Marle says GTM will look at Asia and then Europe as it globalises.

He believes the growing company offers tremendous opportunities for employees. GTM encourages a very entrepreneurial spirit and has a lot of focus on employees, which are seen as the company’s most important asset.

The quantiQ transaction is expected to close in six to eight weeks as it is still subject to anti-trust investigations.

Planning for the integration process is already underway.

“At the moment we are designing the process: we have a lot of experience of this through the successful integration of our other acquisitions,” says van Marle.

GTM executives are developing a 100-day plan, which will start with kick-off meetings to get the integration teams in place.

Local teams draw up detailed plans and implementation usually takes around three months with some extra time built in to get the final details in place.

“We expect it to take three to six months: quantiQ will be kept as a separate subsidiary company and we’ll keep the name for the time being. We put responsibility onto the operating companies to generate quick decision-making and we expect the team to integrate strategy as well as systems and procedures.”

He says there will not be a lot of change at the local level in Brazil because quantiQ has a very strong team and its plans are aligned with GTM’s.

“There are no overlaps because our current position in Brazil is only in oil and gas. Brazil is a very fragmented market with lots of opportunities.”

Van Marle believes Brazil’s economy has hit rock bottom following years of political and economic turmoil.

“There is a new government and we can see the light at the end of the tunnel with their new policies. This will be a volatile year but there is an uptrend in commodities and sentiment is improving.”

He points out that Latin America has a young, increasingly urban population with a growing middle class and more spending power.

“It is a very good moment to do a deal in Brazil. The first year will not be easy but there are lots of growth opportunities here.”

Van Marle says a couple of percent of expansion are forecast in Latin America GDP this year, but GTM’s growth will be double-digit and this is expected to continue for years to come.

He believes that in chemical distribution it is possible to mitigate risk because distributors are not dependent on one geography, product line or customer.

“For the last couple of years there has been pressure on oil and gas so we have increased in other segments and geographies which are less dependent on oil and gas.”